Deutsche Telekom, DSM shares gain ground; GSK continues to slide

SarahTurner

LONDON (MarketWatch) -- European stocks were mixed on Tuesday, with gains from telecom and chemical firms offset by some weakness in the pharmaceutical sector as GlaxoSmithKline shares saw second-day losses amid safety concerns around a diabetes drug.

Chemical firms were also making progress, with DSM (00981) shares up 4.2% and Alzo Nobel (00913) up 1.4%.

Both sectors were under the deal microscope after General Electric agreed to sell its plastics business to Sabic in an $11.6 billion deal on Monday and telecom group Alltel got a private equity offer on the same day.

Around the regions, the German DAX Xetra 30 index (1876534) closed up 0.5% at 7,659.39. The ZEW indicator of German economic expectations rose to 24 in May, up from a reading of 16.5 a month ago.

"The strong ZEW numbers should be a boon to euro zone stocks," noted David Brown, chief European economist at Bear Stearns.

Noting that markets are generally finding it hard to progress from current levels, David Buik at Cantor Index said: "I think it's case of looking at the results, digesting what's going on and deciding what news should take the market either forward or back."

GlaxoSmithKline shares slip again

Of individual movers, GlaxoSmithKline
GSK, -0.30%
(GSK) shares fell for a second day in the wake of an article in the New England Journal of Medicine that raised safety concerns on the company's Avandia treatment.

Shares in the pharmaceutical lost 1.4% on Tuesday after several brokers cut their ratings on the company.

"Avandia is GlaxoSmithKline's second-biggest selling product group with sales of 1.6 billion pounds in 2006. We believe that there is contradictory evidence over the exact risks of cardiovascular adverse events with Avandia and we now expect an FDA Advisory Committee in the next few months," said analysts at ABN Amro, after downgrading the company to hold from buy.

Deutsche Bank also cut its stance on the company to hold from buy.

Also in London, shares in Marks & Spencer (MKS) declined 4.7% after the firm said that it expects the retail environment to become more challenging as competition remains intense and interest-rate rises are expected to hurt consumer spending.

It made the comments alongside its fiscal-year earnings, where net profit rose to 659.2 million pounds, from 523.1 million pounds, but margins slipped by more than expected. See London Markets.

IT services group LogicaCMG (LOG) slumped 9% after it said that its performance in the U.K. has been disappointing. See full story.

On the plus side of earnings-related news, shares in stock exchange operator NYSE Euronext
NYX, -0.70%
(NYX) rose 2.6% after it said that first-quarter operating profit at its Euronext arm rose 31.7% to 144.6 million euros.

First-quarter profit dipped 4.4%, reflecting in part a year-ago gain from selling Belgian securities depository CIK, while margins strengthened amid record trading levels. See full story.

Meanwhile, shares in airline British Airways (BAY) declined 2.8% after it said that it has joined a consortium led by private-equity firm TPG mounting a bid for Spanish airline Iberia (014720003).

Iberia shares were flat throughout the day at 3.92 euros. TPG and its partners in late March made an indicative bid worth 3.4 billion euros ($4.6 billion) for Iberia, or 3.60 euros per share. See full story.

Shares in electricity company Iberdrola (014458001) were suspended in Madrid after the firm said that it will sell up to 20% of its renewable energy unit, Iberenova, in order for the unit to obtain its own stock market listing.

Also, STMicroelectronics
STM, +3.60%
(012970) shares rose 0.9% in Paris after it said that it will form a flash memory company with Intel
INTC, -0.76%
and Francisco Partners.

STMicroelectronics will sell its flash memory assets to the company in return for a 48.6% stake and $468 million cash payment.

Telecoms in focus, brokers weigh in

Swedish telecom Tele2 (TEL2B) also added to telecom sector strength. Its shares rose 3.1% after it was upgraded to overweight from equal-weight at Morgan Stanley, with the broker saying it is the best restructuring story in telecoms with 25% upside.

Meanwhile, Bear Stearns analysts commented on the possibility of private equity bids for European telecom companies following Monday's private equity bid for Alltel, which had an enterprise value of $27.7 billion.

"Recent meetings with private equity firms indicate that there is increased interest in European telecoms," the analysts said. They also noted that the price paid for Alltel means that bids for European telecoms could go higher in the future.

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